GitHub is now Microsoft after $7.5B; Circular reference errors in Crypto markets; Hedge Funds and RIAs in a Box -- via Autonomous ?NEXT

Hi fellow futurists -- our top 3 thoughts for this week are:

1. For $7.5 Billion, GitHub is now Microsoft, and what that means for Fintech
2. Circular references in Crypto markets as exchanges Binance and Huobi launch new ecosystem funds
3. Crypto Funds, RIAs, Regulations in a Box

Analysis of these items is below, and this week’s artist is Fang Lijun.

For $7.5 Billion, GitHub is now Microsoft, and what that means for Fintech.  

Remember when Microsoft got left in the dust by Apple's iPhone? Or when Bing tried to beat Google? If you're a tech firm, missing a platform shift like search, mobile and social is profoundly painful. Well, no more. The enterprise tech giant is in cloud, blockchain, and augmented reality. And it's in enterpise social media -- big time. Microsoft is putting up $7.5 billion to purchase GitHub, which has 28 million developers in the community, and over 60 million code repositories. Think of that as shared documents on a massive cloud drive, but those documents are executable and the people doing the sharing are engineers with razor sharp skillsets.

This is an interesting turn for Fintech and Crypto. To be honest, we always thought of GitHub like a community resource, similar to Wikipedia, and not a corporate entity with founders that want to get monetized. But like LinkedIn, this asset found its way to Redmond. While Facebook is still cleaning off the hangover from Cambridge Analytica and selling customer data, Microsoft has positioned itself as a developer- and open source-friendly ecosystem catalyst. Which is ironic, given its history as a monopolist, open source antagonist, and start-up crusher. 

GitHub has tendrils into every startup team in the world. If you write code, you use GitHub for version control, collaboration, and sharing. Where do you think all the crypto code sits? If you're Ethereum or Bitcoin or anyone else in the world, code commits to GitHub are a fundamental indicator that crypto funds use to evaluate the health of your project. Or, if you're trying to work out crypto governance and decide which proposals to include or exclude in the main codebase, again, you are using GitHub to manage decisions. Or if you're a teenager wunderkind interested in using open source Artificial Intelligence frameworks to build your machine -- e.g., Tensorflow or PyToch -- you use GitHub to learn and get started. Welcome you tired, poor, huddled masses yearning to breathe free; welcome to Microsoft.

Source: Techcrunch ($7.5 billion), Wikipedia (infographic), Deloitte, Azeem Azhar (AI frameworks)

Circular references in Crypto markets as exchanges: Binance and Huobi launch new ecosystem funds.

Towards the end of last year, we noted that there was a circularity in the crypto, private and public markets. Large ICO launches were inspiring private companies to follow as well (e.g., Kik), public companies changed their names to blockchain pretenders (e.g, Long Island Ice/Chain), crypto companies pointed to this as progress and Bitcoin went up. It wasn't purposeful market manipulation, but a hype cycle reverberating in a small room. What we're seeing now is, well, kind of worse.

Tezos raised $232 million when the price of Ether was about 50% or less than it is today, so about $500 million now. The result is a lot of lawsuits, no product, and the formation of a $50 million venture fund. Binance raised $15 million through its ICO, which now trades at over $2 billion. The exchange is launching a $1 billion venture fund. Huobi raised $300 million, and though the token trades at a discount, it is also launching a $93 million venture fund. EOS, the largest ICO ever at $4 billion, is committing $1 billion to venture through partners like Galaxy Digital. Another example stuck out at us from a recent Coindesk article, where Meltem Demirors described this cycle -- "[Blockchain Capital invests in Ripple, which owns XRP currency]. Ripple took some of that XRP and gave it back to Blockchain Capital. Blockchain Capital then turns around and invests it in Coinbase ... Coinbase now created a venture fund investing in startups Blockchain Capital is also investing in, who are then turning around and investing in startups with ICOs."

This is billions and billions of capital that were invested for one purpose -- to help the fund-raising team build software products that investors want to use -- that are being re-purposed into another direction entirely. Hey, maybe you hired me to program this website, but I decided manage your retirement portfolio instead. One result is a skill mismatch: lucky coders are not professional investors. Another result is the loss of focus. And the last is the systemic risk to the whole ecosystem. If the investment returns are based on financial engineering and memes, rather than some real economic activity to underpin our excitement, then a regulator pulling hard on one thread will unwind the entire experiment.

Source: ICOs (Binance ICO, Huobi), Venture funds (Tezos, Binance, Huobi, EOS), Coindesk (Quote)

  Crypto Funds, RIAs, Regulations in a Box. 

The cost of launching a startup has fallen from a few million to a few thousand dollars. Why? Amazon and its cloud have collapsed the needed IT infrastructure to a cheap off-the-shelf subscription. Stripe Atlas has made corporate and payments gateway setup a breeze. But what if you're starting a financial entity, and not a software company? What if you're starting a Registered Investment Advisor, and not a wealth tech platform, or if you're starting a hedge fund offering a crypto index, and not a blockchain of blockchains? For that, let's take a look at compliance in a box. 

One of our favorite companies in the independent wealth management space is RIA in a Box. It does what it sounds like -- it sets up a Registered Investment Advisor entity, registers it with the SEC and the appropriate States, and manages ongoing compliance requirements as an affordable service. So if your advisory practice manages $5 million or $500 million, this solution can get you started. In fact, out of 12,000 RIA firms in the US, RIA in a Box has 3,000 as clients. Not surprisingly, Aqualine Capital Partners just acquired the firm through an LBO at an undisclosed price, which tells us that the firm is a cash cow -- an LBO requires a slug of debt that can be serviced by reliable, steady cashflow. And if you control the compliance reporting aspect of a financial entity, it's a very short reach to start selling regulatory, administrative and value-add software.

Now think about crypto funds. It's the same problem -- nobody has any idea how to structure them, which regulatory jurisdiction to pick, what bank to use, or how crypto assets are treated. Traditional counsel could easily cost over $100,000 to go through the motions. Enter the Crypto Fund-in-a-box companies! Take Vauban, which provides an interface to select a type of investment fund, its jurisdiction, target size at launch, while a real-time entity structure is built on screen indicating the cost of setup. Other similar plays include Fundplatform, Otonomous, and Bluemeg (note: we don't know or endorse any of these). Could the ease of solving this international puzzle lead to a similar growth outcome for crypto fund entities? Looking at the data, the first 5 months of 2017 saw 40 new crypto funds; there were 45 new entrants over the same period in 2018. Market volatility has not deterred fund formation. That doesn't mean funds won't fail (e.g., Apex Token Fund shutting down after failing to raise $25mm), but it does mean more will keep trying if it's as easy as clicking a button.

Source: RIABiz (RIA in a box), Crypto Fund in a Box (Vauban, Fundplatform, Otonomous, BlueMeg), Financial Planning (RIA totals), Autonomous NEXT (Crypto Fund totals), Stripe Atlas

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